Tax-free bonds are a very attractive investment opportunity available for an investor. Tax-fee bonds offer good diversification within the fixed income category with the additional advantage of tax-free gain alongside safety of capital. i.e., no tax on the interest and get the full slice of interest without any cut – 100% yours.
Key reasons to go for a tax-free bond:
Tax-free interest: Interest earned from these bonds do not form part of the total income as per provisions of Section 10 (15) (iv) (h) of Income Tax Act, 1961.
Hence, no TDS, no wealth tax (as per Sec 2(ea) of Wealth Tax act, 1957).
gh capital safety: As most of the issuers are government-backed institutions, there is a higher capital safety.
Liquidity: They are listed on the stock exchanges, thereby providing liquidity option to the investors any time before maturity (though one should take care of discount or premium on the price while selling).
Capital Gain: As tax-free bonds are traded on stock exchanges, any decline in the general interest rate, if happens in an economy over next 3 or 4 years, can lead to a capital appreciation of the bond prices (generally).
CBDT has issued a notification for tax-free bonds for the FY 2015-16 and the key points are as follows:
Eligibility: The following categories are eligible to subscribe to the issue:
Retail Individual Investors (RIIs)
Qualified Institutional Buyers (QIBs)
Corporates
High Networth Individuals (HNIs)
Retail Individual Investors (RIIs) are individual investors, Hindu Undivided Family (HUF), NRIs applying for upto Rs 10 lakh. Individual investors applying for more than Rs 10 lakh are classified as High Networth Individuals (HNIs).
Tenure of bonds: The tenure of the bonds shall be 10, 15 or 20 years.
Atleast 70% of the aggregate amount of bonds issued by each entity shall be raised through Public Issue. 40% of such Public Issue shall be earmarked for Retail Individual Investors Category.
It's important to note that:
Tax-free bonds are alloted on first-come-first-serve basis.
Allotment for further bidding received in retail category (post full subscription) is subject to the unsubscribed portion, if available in other categories.
* NRI investors are requested to take adequate precaution to submit the application form in time for bidding and submission. At the moment, online facility is not available for NRIs.
Please read the prospectus for more and detailed information about the issuer and the bond issue.
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As per my information , at present there is no TFB are available in the market.